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Tuesday, June 22, 2010

SSW/GSL: More on Positive Container Trends and "Unprecedented" Box Shortage; TAL Insiders Selling Into Strength

Last Tuesday, we again shared various positive headlines from the shipping sector, including the following:
  • China Breaks Box Traffic Record Container traffic through Chinese ports hit an all-time monthly high of 12.44 million 20-foot equivalent units in May as the nation's foreign trade surged by nearly 50 percent from a year ago..
A few additional points from the article:
  • The record volume was up 21.9 percent from May 2009 and 16.6 percent higher than the same month in 2008, according to Alphaliner, the Paris-based container shipping consultancy.
  • Six of the top 10 ports booked record volumes, led by Ningbo which reported a 52 percent increase to 1.23 million TEUs. Shanghai, Guangzhou, Tianjin, Xiamen and Dalian also recorded all time high monthly traffic.
  • China's exports rose 48.5 percent in May from a year ago and imports were up 48.3 percent, according to Chinese customs.
The recovery defies doom and gloom fears that Europe is going to drag down the world. Moreover, the news is positive for our container shipping companies Seaspan (SSW) and Global Ship Lease (GSL), through which we gain exposure to global trade and stand to benefit from likely long-term growth trends. Of course, we acknowledge that these are asset-heavy companies operating in a cyclical industry (*but with stable long-term business models) where -- admittedly -- our ownership position runs counter to our preference for high margin, asset-light companies such as eBay (EBAY) and Weight Watchers (WTW). We own the shippers as asset recovery plays offered by the Market at low multiples of earnings and distributable cash flow that, we believe, provide a margin of safety. 

Here's a bit more on current events in the sector. Amazingly, as "box" volumes surge, shippers in Asia and elsewhere find themselves short of containers to ship goods - see this commentary from The Journal of Commerce as well as these stories -
A direct beneficiary from the container imbalance is TAL International Group (TAL), which we referenced in the past regarding container history since 1985. TAL leases containers to major shipping lines and we track the company for insights into the space. Not surprisingly, investors continue to bid the stock higher: 

Even with the run, shares of TAL are not necessarily overvalued depending upon perspective (choose your preferred metrics and target fair value range) - from Yahoo Finance:

VALUATION MEASURES
Market Cap (intraday)5:814.71M
Enterprise Value (Jun 22, 2010)3:1.99B
Trailing P/E (ttm, intraday):13.39
Forward P/E (fye Dec 31, 2011)1:12.75
PEG Ratio (5 yr expected):1.22
Price/Sales (ttm):2.42
Price/Book (mrq):1.93
Enterprise Value/Revenue (ttm)3:6.00
Enterprise Value/EBITDA (ttm)3:8.38

TAL management highlighted as much at the company's recent analyst day (link to presentation). Still, we retain our preference the the container shippers, which -- in our view -- have yet to be fully embraced by the Market. FURTHER, TAL insiders and major holder, The Fairholme Fund (Bruce Berkowitz), are taking advantage of recent market strength to reduce exposure - also from Yahoo Finance (click Yahoo link to see more):

INSIDER TRANSACTIONS REPORTED - 
DateInsiderSharesTypeTransactionValue*
9-Jun-10SONDEY BRIAN
Officer
10,000DirectSale at $21.82 per share.$218,200
8-Jun-10LINDEBERG FREDERIC H
Director
5,500DirectPurchase at $20.64 - $20.7 per share.$114,0002
8-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $21.05 per share.$315,750
7-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $21.72 per share.$325,800
4-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $22.89 per share.$343,350
3-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $24.22 per share.$363,300
2-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $23.08 per share.$346,200
1-Jun-10SONDEY BRIAN
Officer
15,000DirectSale at $23.30 per share.$349,500
26-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
21,800IndirectSale at $22.66 per share.$493,988
18-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
18,900IndirectSale at $25.20 per share.$476,280
17-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
32,300IndirectSale at $25.27 per share.$816,221
14-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
20,600IndirectSale at $24.86 per share.$512,116
13-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
14,000IndirectSale at $24.86 per share.$348,040
12-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
20,100IndirectSale at $24.79 per share.$498,279
11-May-10BERKOWITZ BRUCE R
Beneficial Owner (10% or more)
17,980IndirectSale at $24.44 per share.$439,431
11-May-10KHAN CHAND
Officer
1,000DirectSale at $23.95 per share.$23,950


We always prefer to see insider purchases rather than sales. Nonetheless, we think continued improvement in fundamentals bode well for TAL as well as our SSW and GSL.

Happy investing,

Jeffrey Walkenhorst
CommonStock$ense

Disclosure: long GSL, SSW, EBAY, WTW.

© 2010 Jeffrey Walkenhorst
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